March 20, 2009
The Honorable Nancy Wyman
State Comptroller
55 Elm Street
Hartford, Connecticut 06106
Dear Comptroller Wyman:
The following information on the State’s General Fund for fiscal year 2008-2009 is provided in accordance with Section 4-66 of the General Statutes. In addition, an analysis of the Special Transportation Fund is included due to the significant nature of this fund. Estimates are as of February 28, 2009. This letter reflects the passage of Public Acts 08-01 and 08-02 from the August Special Session, P.A. 08-01 from the November Special Session and P.A. 09-1 and P.A. 09-2 of the 2009 Regular Session.
More than twenty-one months have passed since Governor Rell signed the biennial budget into law (Public Act 07-1). As you know, the 2008 legislative session ended without passage of a revised midterm budget. Due to worsening economic conditions, Governor Rell ordered a number of measures to curtail state spending. These include a ban on out-of-state travel, implementation of a hiring freeze and the implementation of a fourth round of allotment rescissions in accordance with her authority under CGS 4-85. Those components of the last Governor’s Deficit Mitigation Plan that were acted upon in P.A. 09-2 are now reflected in this letter. In addition, the impact of the passage of the American Reinvestment and Recovery Act of 2009 is also factored in to the estimates.
In the General Fund, we are now estimating a deficit of $667.4 million. This month’s letter reflects all of the actions taken by the Governor and the General Assembly through February 28th. This month’s letter contains several significant changes to the state’s projected revenues. First, underlying revenue projections have been revised downward by $275.8 million described below. Second, we have incorporated those revenue actions taken by the General Assembly in Public Act 09-2 which total $56.8 million. Third, we have included within Federal Grants the $383.8 million we are expecting to receive primarily from the enhanced Medicaid reimbursement contained in the American Recovery and Reinvestment Act (ARRA). Those three major changes net to an increase in General Fund revenue of $164.8 million. In regards to the $275.8 million in further revenue deterioration since our February 20th letter, we are revising the Personal Income Tax down $60.0 million due to the expectation that March withholding collections will miss their target for the month. Withholding collections for the period December through March are heavily influenced by compensation paid in the form of a bonus and although OPM had expected a decline in such payments this year, collections in the month of March have been worse than expected. OPM has not adjusted its forecast for Estimates & Finals payments under the Income Tax as they are currently on target and we are awaiting data from the critical month of April. We are also revising the Sales Tax down by $85 million as collections in the months of December through February have fallen by approximately 10% compared to the same period a year ago and although we expect that trend to moderate, the remainder of the fiscal year is still expected to be negative. Refunds of Taxes are also expected to be worse by $120 million. This is due to two factors. First, Income Tax refunds have significantly exceeded their target and second various business tax refunds have also exceeded their target, driven significantly by the state’s Film Industry Tax credit. All other revenue changes (excluding PA 09-2 and ARRA revenue mentioned above) net to a negative $8.3 million.
In the General Fund, we are estimating that due to the Governor’s four rescission programs, actions taken by the General Assembly and other surpluses available in select accounts, lapses are approximately $313.3 million higher than budgeted. All told, the statewide lapses are estimated to reach $430.8 million. These are itemized in Statement 4 of the attached report. Deficiencies totaling $77.0 million are anticipated, including a $7.6 million deficiency in the Department of Mental Health and Addiction Services, a deficiency of $16.9 million in the Department of Correction and a projected deficiency of $1.5 million in the DAS-Workers’ Compensation Account, related primarily to the roll-out of last year’s deficiencies in those agencies. We are also projecting a net deficiency in the Department of Social Services of $50.98 million. Primarily reflecting a shortfall of $38.2 million in the Medicaid account largely due to additional costs beyond those appropriated from the expansion in eligibility for HUSKY adults, as well as a shortfall of $8.0 million for non-formulary drugs under the Medicare Part D Supplemental Needs Fund.
Contingent upon actions yet to be taken by the General Assembly, this projected deficit could be reduced by $220 million contemplated in the PA 09-2. Additionally, contingent upon the outcome of discussions currently underway between the administration and SEBAC, labor cost savings of approximately $77.3 million are possible. If both of these items are successfully implemented, the remaining deficit would be approximately $361.1 million. Governor Rell will be submitting her fourth deficit mitigation plan to the General Assembly.
Transportation Fund revenue has been revised downward by $19.8 million across various revenue sources. A significant portion of this revision can be attributed to the large decline in new automobile sales. This decrease is partially offset by expenditure reductions of $2.5 million.
It should be noted that while these projections are the best that can be made at this time, estimates may have to be adjusted to reflect changes in the economy, expenditure patterns and/or other factors. It is important to note that we will continue to refine our analysis of the economic impact attributable to the President Obama’s economic stimulus package in the month’s ahead. As more definitive information becomes available, it will be incorporated into future projections.
Sincerely,
Robert L. Genuario
Secretary
